August 29, 2011 (Chris Moore)

The Pending Home Sales Index (PHSI) declined by 1.3 percent to 89.7 in July according to the National Association of Realtors (NAR). This was the first decline for the PHSI after two months of gains, but still remains above the level of last year’s Index.

The PHSI is 14.4 percent above the 78.4 reading in July of last year. However, the Index in July of last year was extraordinarily low following the drop in housing activity due to the end of the home buyer’s tax credit.

All regions but the West showed a decline in their level of sales contract activity.

Pending home sales increased in the West by 3.6 percent to 110.8 and was 20.6 percent higher than a year ago, while in the South, pending home sales fell 4.8 percent to 94.4, but were 9.5 percent higher than in July of 2010.

The PHSI also declined in the Northeast and the Midwest with the Northeast slipping 2.0 percent to 67.5 in July, but still 9.7 percent higher than July 2010, and in the Midwest, the index fell 0.8 percent to 79.1 in July, but is 18.8 percent above a year ago.

The PHSI is a forward looking indicator which generally indicates closings one to two months in the future.

Lawrence Yun, chief economist of NAR, once again stressed that tight credit was the primary reason for an underperforming housing market.

“The market can easily move into a healthy expansion if mortgage underwriting standards return to normalcy. We also need to be mindful that not all sales contracts are leading to closed existing-home sales. Other market frictions need to be addressed, such as assuring that proper comparables are used in appraisal valuations, and streamlining the short sales process,” Yun stated.

Yun also said he felt the underlying factors for improving sales are developing, such as rising rents, record high affordability conditions and investors buying real estate as a future inflation hedge. In his opinion, it all now comes down to a question of lending standards and consumers having the confidence to enter the housing market.

Tags: NAR, pending home sales, existing home sales, tight credit, economic uncertainty, Washington policymakers, housing recovery